THE BIG FIX

A desperate St. Louis pays top dollar to gamble on a risky convention-center hotel

In addition to alms to the pols, the art of the deal also involves the establishment of other necessary allies. In this regard, it behooved HRI to gain the support of Carolyn Toft, the executive director of the Landmarks Association of St. Louis and a staunch preservationist of downtown architecture.

And the developer also attracted minority participation and a key City Hall ally with Clifton Gates, chairman of Gateway National Bank. Gates says he approached HRI in 1997, knowing the developer "would be interested in minority participation." Gates solicited other potential minority investors, including restauranteur Eric Bachelor and World Wide Technology founder David Steward. Bachelor agreed to invest; Steward, who did not return a telephone message, did not. Gates and Bachelor, who are raising money for Harmon's re-election, will each own 5 percent of the hotel, and they're helping pay their share of the front-end costs incurred by the developer, Gates says.

Gates says there's risk to the project, but he considers the hotel essential to the city's future. "It's going to add to the economy of the city. It'll bring some life after 5 p.m. to downtown, with additional shops and the things that will spring up here and there. It'll be a catalyst -- and I'm sure a lot of things will follow as a result."

A stroll down Washington Avenue on a Saturday night leaves the impression that something akin to a revival is going on downtown these days. A woman with a bad dye job and fishnet stockings stands in the middle of the street, causing traffic to slow in front of Velvet, a lounge at 1301 Washington, where a horde of nightclub customers loiters outside on the sidewalk. Two blocks to the west, art patrons cluster around the entrance to a gallery exhibit in the rehabbed East Bank loft building. It may be as ephemeral as the steam rising from a manhole cover or more permanent than the historic warehouses that still fill the mostly abandoned garment district. But the sense of heightened expectation is palpable. The recent success of the City Museum has added a measure of reality to the nascent resurgence, as have the growing number of loft dwellers who have taken up residence.

These signs of renewed downtown life are part of a vision that Deputy Mayor Jones calls "divinely inspired." It is a vision that, perhaps more important, has the blessings of the local corporate establishment. Within days of the hoopla over the hotel deal's being signed in June, Downtown Now announced its intention to pump $17 million into street improvements along Washington Avenue. Like the hotel plan, financing for the proposed infrastructure improvements is held together by a mortar of heavy tax subsidies.

Until now, Washington Avenue redevelopment has been limited mainly to a few blocks west of Tucker Boulevard, leaving an aura of desolation around America's Center. The city's idea of reinvigorating downtown involves connecting the convention center to the burgeoning nightclub and arts scene. The cornerstone of that dream has become the old hotel at Ninth and Washington.

The Gateway Hotel, with its Italian Renaissance design, was originally built in 1917 as a part of the Statler chain. The 18-floor structure, which is listed on the National Register of Historic Places, features an ornate two-story ballroom at the top and a lobby of similar grandeur on the ground level.

In 1981, the hotel fell into the hands of a group that included Denver businessman Victor Sayyah and former St. Louis License Collector Peter Webbe. Sayyah already had a stake in the St. Louis hotel trade through his interest in the nearby Mayfair Hotel, which he co-owned with Webbe's brother Sorkis Webbe Sr., an attorney with local political and mob connections. A fire that broke out at the hotel on Feb. 12, 1987, was ruled arson by investigators. This prompted the insurance company to refuse to pay off the claim, but Sayyah eventually won $6.7 million in a court settlement. After the fire, the hotel never reopened, languishing in neglect until the city finally exercised its option to buy the building in 1997.

The city already had taken deed to the Lennox in 1995, after HUD foreclosed on millions of dollars in unpaid loans made in the 1980s to the previous owner, the Pantheon Corp. The late Leon Strauss, the founder of Pantheon, had used the hefty public subsidies to convert the 24-story Lennox into an upscale apartment complex before his company went bankrupt.

At the expected closing date in June, the city is supposed to sell the Gateway and Lennox hotels for $3 million to Gateway Hotel Partners LLC (GHP), the company that will own the hotel. Partners in GHP include Washington Avenue Historic Development LLC, a corporation set up by HRI to develop the hotel project, and Kimberly-Clark's Housing Horizons. The same agreement allows the developer to be reimbursed for more than $9 million in predevelopment expenses when the deal closes.

The high level of public subsidy in St. Louis' convention-hotel project is hardly unique. Indeed, it follows a pattern established across the country from Philadelphia to Denver. In most all of these cases, cities subsidize private hotel developments to the hilt with the intent of attracting convention business. But, with $74 million of public subsidies, St. Louis ranks as perhaps the most accommodating locale for a developer in the nation.

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